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Investing is a notoriously noisy industry, but Warren Buffett has always managed to cut through the clutter with his simple yet powerful advice.
One of Buffett’s most overlooked nuggets of wisdom is about focusing on the right type of business.
In a letter to Berkshire Hathaway shareholders, he once wrote that “the best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return.”
“The worst business to own,” Buffett continued, “is one that must, or will, do the opposite — that is, consistently employ ever-greater amounts of capital at very low rates of return.”
At age 94, Buffett recently decided to retire from his longtime post as CEO of Berkshire Hathaway. At the time of his announcement in May, he ranked fifth on the Forbes real-time billionaires index, with a net worth of $160 billion.
Here are some great examples of his advice — and holdings — in action.
Buffett’s largest holding is Apple, the iPhone maker based in Cupertino, California. Despite a major selloff in 2024, when Berkshire Hathaway dumped roughly $80 billion of Apple stock, the company still makes up 22% of Berkshire’s portfolio. That’s more than any other single holding.
The iPhone’s continued popularity, alongside solid high-margin segments for its services and software makes Apple an attractive investment.
Most tellingly, Apple’s return on invested capital (ROIC) is currently sitting around 47%. That’s exactly the kind of capital efficiency that Buffett described as the hallmark of a great investment. It means for every dollar Apple reinvests into the business, it earns nearly half of it back in profit annually. That’s Buffett’s investing principle in full force.
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America’s most famous beverage maker has been in the Berkshire Hathaway portfolio for decades. Buffett started buying Coca-Cola (KO) stock in 1988. Given his portfolio currently holds around 400 million shares, he could be earning over $800 million annually in dividends from his stake. And Coca-Cola’s consistent dividends suggest it lives up to Buffett’s adage, by employing its capital effectively for investors.
After all these years, KO is still the fourth-largest holding in the portfolio, currently accounting for close to 9% of assets. Coke has sustained its dominance in the global beverage market, thanks to enduring brand power, global distribution and consistent demand for its core products.
Coca-Cola’s ROIC is around 23%, which is solid, but much lower than Apple’s. While it doesn’t generate the same margin on its reinvested capital, Coca-Cola has proven its strong brand loyalty and stable cash flows over decades. Investors looking for a safe bet could consider adding this classic Buffett stock to their watch list.
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Aside from looking to Buffett for investment ideas, there are plenty of other great resources to make the most of your investing strategy. At the same time, many pundits falsely claim they know what the latest and greatest stock is.
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